2023 (6) TMI 1419 - AT - Income Tax

Disallowance of expenditure towards employees contribution to ESIC/PF u/s 36(1)(va) - HELD THAT - As regards the justifications advanced on behalf of the assessee towards improper disallowances u/s 43B and 40(a)(ia) in respect of service tax liability and non-deduction of TDS on interest etc. we are not in a position to express any view in the absence of requisite documentary evidences. These issues are also restored to the file of AO. The assessee shall be at liberty to adduce all legal and factual arguments before the AO for logical conclusion in the matter. AO shall determine the issues involved in accordance with law after giving proper opportunity.

Summary

Issues:
Disallowance of expenditure towards employees' contribution to ESIC/PF under Section 36(1)(va) of the Income Tax Act for Assessment Years 2018-19 and 2019-20.

Analysis:
The appeals were filed against the orders of the Commissioner of Income Tax (Appeals) concerning disallowance of expenditure towards employees' contribution to ESIC/PF under Section 36(1)(va) for AYs 2018-19 and 2019-20. The assessee, engaged in security manpower supply, faced disallowances for delayed deposits of employees' contributions. The Assessing Officer disallowed amounts for late deposits, leading to appeals before the tribunal.

The assessee contended that adjustments for delayed deposits are impermissible under Section 143(1) of the Act, emphasizing the nature of their business where salaries are paid based on client payments. They argued that due dates for deposit should align with actual salary payments, not when the liability arises. Additionally, they claimed the expenditure is allowable under Section 37(1) and challenged other disallowances under Section 43B and 40(a)(ia).

The tribunal considered the submissions and relevant legal provisions. It noted that adjustments were made after providing an opportunity for response and upheld by the CIT(A). The tribunal cited precedents to support the disallowance under Section 36(1)(va) and rejected the alternate plea for deduction under Section 37(1), citing Supreme Court judgments.

Regarding the methodology of calculating defaults under PF/ESIC Acts, the tribunal remanded the matter to the Assessing Officer for further examination. The issues of improper disallowances under Section 43B and 40(a)(ia) were also remanded for proper evaluation with necessary evidences.

Consequently, the tribunal set aside the intimations for both assessment years and restored the issues to the Assessing Officer for fresh determination in accordance with the law. The appeals of the assessee were allowed for statistical purposes, emphasizing the need for proper evaluation and opportunity for the assessee in the fresh proceedings.